Credit Negotiating, 2014 CreditScape, Western Region Credit Conference Seminar Slide Deck, sponsored...

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CMKF Creim Macias Koenig & Frey LLP

Credit Credit NegotiatingNegotiating**********************************************************************

SEVEN TIPS I HAVE LEARNED FROM MY WORK WITH CREDIT MANAGERS

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Richard Macias is a partner with the law firm of Creim Macias Koenig & Frey LLP. The firm specializes in creditors’ rights.

Mr. Macias represents trade suppliers, manufacturers and financial institutions in litigation involving contract enforcement actions, bankruptcy, business transactions, bad faith claims, collections, antitrust and dealer terminations.

Mr. Macias received his law degree from Harvard Law School in 1975.

Prior to entering private practice, he served for three years as a criminal prosecutor in the office of the Los Angeles City Attorney and later was appointed to be Special Counsel to the City Attorney. He also was an Associate Professor of Law at Loyola Law School in Los Angeles, where he taught courses in litigation procedure, trial practice and negotiation skills.

He has written numerous articles on topics of interest to secured and unsecured creditors.

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The Economic Environment of

Credit Negotiation in

2014

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Banks slashed small business lending by $43 billion

http://money.cnn.com/2011/02/11/smallbusiness/small_business_lending_drop/index.htm

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Small Business Lending Trends

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http://online.wsj.com/article/SB10001424127887324010704578418361635041842.html

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1. The “Four “C’s” Of Credit Negotiating

Just as there are the C’s of credit risk management, those attributes that help determine how risk can be evaluated (character, capacity, capital, conditions and collateral), there are the “Four C’s” of credit negotiating:

Careful: Really listen to the other party for hints about problems. Be interested in their issues. Calm: This is a tactic that will encourage the other side to state their position and objections. You can turn this off when it is to your tactical advantage. Clear: Confirm the other party heard you and clearly understands your position. Comprehensive: Prepare yourself as best you can under the circumstances, time constraints and information available. Do your homework. Think about: Possible “What Ifs,” and “ What Not's,”

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2. Leverage in Credit Negotiation

Both sides must want something or else there is no point to be negotiated. Usually one side needs the bargain more than the other does. The difference in this wants/needs equation is leverage.

a. Credit negotiation inevitably is positional. They have and you want. Not very often you have a win/win scenario.

b. Where is the business relationship? Are you still interested in doing business? Do they still want to buy?

c. The ultimate objectives of credit negotiations Immediate Dollars, or A solid commitment for payment, or Information about financial issue that impact your future

credit decisions.

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3. The Importance of Personality in Credit Negotiation

You must anticipate how the other side will bargain. Is this someone who is combative or a compromiser, a poker player or a chess player? You can't change them but you need to have a good sense of the other side.

a. Like types work together best. b. Blunting intimidation with firmness and calm.

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Example: The debtor tries to bully you in to an early concession.

Bullying has different forms. The debtor may be of strategic importance or the individual you are negotiating with has an assertive style, using fear and threats to gain concessions. “I’ll take my business elsewhere if you force this issue.” “If you push me too hard we will file for bankruptcy protection.” “If you push me on this my manager is very friendly with your CEO. He will complain that you are being unreasonable.”

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Example: Intimidating personality.

Individuals who exert power to intimidate the other side do it because it works. Sometimes the individual uses a senior title to intimidate. In reality they may only be influential in their own environment. They may not be used someone pushing back. A good negotiator will diffuse this tactic immediately: “Our Company does not do things the way you are suggesting and I won’t agree to it.” (i.e.: This draws the line in the sand and makes it clear you will not be intimidated) Then begin to build your case around logic and if appropriate with insight into the other side’s needs. Emphasize that you are trying to find a BUSINESS solution that works for both of parties. “If we can’t work together to come up with a solution we both lose. We do have a contract that defines how we agreed to work together. “

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4. Establishing Your Credit Management Goals

Effective negotiators start with a reasonable range of expectations but begin by bargaining for a result at the higher end of the range.

a. Are there “no cost” options?b. Setting a justifiable goal instead of merely a "bottom line."c. Do you know what you (and your boss) want?

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5. Essential Strategies For Credit Negotiation

• Be Prepared (DON’T GO IN COLD)

• Negotiate With the Decision Maker

• Keep Your Powder Dry: Control When and How You React

• Try To Get A Feel For What They Want Before They Know What You Want

• Match Your Personal Style to the Other Side’s

• Know When You Will Walk Away, and How.

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Example: The debtor is a slow payer. When confronted the reaction is: “For cash management reasons, we pay everyone slow to their terms. So if you want to do business with us that is how you will be paid. The debtor’s using a blended approach: both logic, “That is the way we do it”, and power/intimidation," Take it or leave it.”

Your reaction can use the same logic and power as the debtor.

Response: “We are a business too. We have to maintain adequate cash flow to stay in business. (Logic) Or, we are required by law to extend all customers in the same class of trade the same terms. We can not have a payment policy for your company that is different from your competitors.” (Fear/Power)

Ask the open ended question but tie it to your objective in the negotiation. “Considering our terms are N30, what can you suggest that will help both of us?

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Example: The debtor reacts with a response that asks you to be sensitive to their needs. Listen carefully. Respond with the needed sensitivity but tie your response back to your original position. Never lose sight of your objective in the negotiation. Have pre-planned the options you are willing to discuss.

Ask “What do you need?” “I will see what I can do.” “Let’s explore the options.” Try to avoid a heavy handed response that will change the tone and may lead to confrontation.

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6. The “Art” Of Credit Negotiating Is In Being Able To Adapt, Improvise And Overcome

Example: The debtor offers a position that is not clear and must be better understood and can be challenged: “I’d like to pay you but our system and approval process slows our payments.”

Ask open ended questions that will reveal the real problem:

“How long is your average receipt of invoice to payment cycle? What specific parts of the process cause the delays you are referring to? What can we do to speed things up? Can we work together to streamline the current process?”

"Cool" vs. "Hot" negotiating environments

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7. Effective Concessions: When to “TRADE OFF”?

IF YOU GIVE SOMETHING UP, GET SOMETHING BACK IN RETURN.

Know what you want to have vs. you must have as the outcome of the negotiation.

Anticipate what you can give up in a negotiation. Be prepared to do so if absolutely necessary.

Avoid deadlocks: Ask the other side. “I hear what you are asking but how do we make that work for both of us?”

Example: “OK I understand you have to delay payment. I can accept it before my month end as you proposed. However, to agree to this you will have to bring the entire account current for shipments to be reinstated.”

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RICHARD C. MACIAS

Creim Macias Koenig & Frey LLP633 West Fifth Street, 51st Floor

Los Angeles, California 90071Phone: 213-614-1944

Fax: 213-614-1961

[email protected]

© 2014 Richard Macias/CMKF LLP. All rights reserved.

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